Indonesian integrated gas development: Fact or fiction?

Mustain Sjadzali, Chairman, Indonesian Pipeline Industry Association, Jakarta, citra@indo.net.id

At a dimly lit top-secret operation room somewhere in the Caucasus Mountains, the pipeline route is displayed on a large screen against a map of the central area region. A tense group of people fix their gaze on the two flashing icons moving along the line, the points of drama.

Inside that pipe, hurtling at 70 mph through a claustrophobic tube just 48 inch in diameter and thousands of miles long, is Pierce Brosnan (Bond, James Bond) astride an intelligent pig (a contraption shaped like a cannon shell, that monitors, inspects, and records the internal conditions of a pipeline, inserted in a pipe, propelled by gas behind it) accompanied by the beautiful Dr. Christmas Jones, an atomic physicist on assignment to dismantle a nuclear test-site in Kazakhstan, whom he had recently befriended. They are in hot pursuit to intercept a similar rig. The passenger on that one, a nuclear bomb.

Contact is made, and the lovely Doctor removes the plutonium leaving a small detonator. Brosnan and partner dismounts just in time, the bomb goes off further down the line, severing the pipe, creating an exit. And later they emerge out of the pipeline in the middle of nowhere, still in his Saville Row attire, a few smudges on his handsome face. Unshaken, unstirred. Once again Bond is about to save the free world. This time from the evil intent of the seductive industrialist Electra King (Sophie Marceau), who alternates between being appealing and appalling. She built and owns the pipeline. Combined with her devious scheme she is convinced of her potential global dominance. Or at least regional influence. For her, The World is Not Enough.

Seldom is a pipeline publicly raised to that level of drama, significance and glamour. That line, may or may not exist, but it certainly provides a compelling rationale for one.

Strategic pipelines between Kazakhstan and Russia, Turkey, Georgia, and across Iran have been laid. Just eastwards a large pipeline has just been completed between Kazakhstan and China.

Looming in our horizon is the Trans ASEAN Gas Pipeline (TAGP). Linking gas production centers with markets within Asean countries offers solid logic.

The undertaking is massive, but legs of the grand plan are the existing cross border linkages already in place and those being constructed between Malaysia to Singapore, Malaysia to Thailand, Burma to Thailand, Indonesia to Singapore and Malaysia.

Sitting on over half of the gas reserves in the region, Indonesia is considered as the main supply hub.

TAGP envisions an evolutionary development with national gas grids as basic building blocks. Within that scheme, in the case of Indonesia, the Grissik - Duri (540km) line is the first to be in place, with the spur line to Batam, and Singapore currently underway. And none too soon.

Even within the Indonesian archipelago, gas is not evenly distributed between source of supply (Kalimantan and Sumatra) and demand (the industrialized and populous East and West Java).

Images of brown-outs and high cost of liquid fuels for power generation looms in the immediate future. Not to mention gas as an ideal substitute for oil which can be easily exported for valuable foreign currency.

For sure, plans, schemes and diagrams of the 3600 km pipeline (that have become wall posters which all pipeline practitioners are able draw with their eyes closed) have been around for at least two decades.

So is this another one of those pipe dreams, which is only slowly, ever so slowly, becoming real?

Enter reformasi. Even with all its shortcomings, the government and Pertamina have put profound and earnest efforts to deregulate the once stifling oil and gas regulatory regime.

The long awaited and newly passed oil and gas bill in principle enables the private sector to participate in developing, building, owning and operating pipelines.

However, a healthy market still needs to be developed since regional pipelines face a vicious circle. Gas pipelines won't be laid until strong and steady demand exists, while users will be slow to convert and invest in gas usage as long as the supply and price remain uncertain, and to some, confusing.

Compounded onto that are other concurrent events and phenomena in this country. The economic crisis nearly paralyzed the financial sector. Reformasi inspired regional autonomy and with it, its inherent stability issues. Investment climates, rule of law, sanctity of contracts.

To be fair, referring to the Central Asia region that is no less politically challenged, there is more transmission pipelines per capita in place than in Indonesia.

But if we are to catch up for lost time, and opportunity, these issues will have to be addressed, head on. Only then investors, domestic and especially foreign will come.

It would be ideal to have a clear and coherent National Gas Development Master Plan, and the collective political will to make it happen.

After all Indonesia is still one of the largest exporters of LNG in the world. More importantly oil and gas will be the main driver of this country's economic recovery.

Indeed ever since oil was first discovered in Telaga Said in 1885, and Indonesia became a petroleum producing country, pipelines became intertwined with the subsequent development, and which at times saw, rapid growth of the oil and gas industry in this Asian region.

Considering the number of oil companies, from Pertamina, production sharing contractors, then PGN (the state gas company), it is natural that thousands of kilometers of various pipelines ranging from collection lines, flowlines, trunklines and transmission have covered hydrocarbon regions and traversed the country.

The numerous pipelines built over the years have left a substantial body of knowledge, know-how and skill amongst practitioners.

They become valuable assets and contribute much towards the operation and reputation of both national as well as international construction companies operating in this country.

National construction companies though are disadvantaged by the depressed volume and continuity of domestic pipeline work in recent years. So the coming prospects do bring excitement to the industry. Although the lack of financial and banking support available is still a major handicap.

If the spirit of ASEAN togetherness is to be sought and manifested through the various aspects surrounding the Trans Asean Pipeline then cooperation between regional contractors could be put on the agenda to enhance equitable distribution of opportunities within member states.

Even pipeline manufacturers in Indonesia with a combined capacity of more than 600,000 metric tons per year production of API (American Petroleum Institute) standard are currently running at 10 percent capacity.

All dressed up, and nowhere to go, they are eager, ready and waiting. Their history and development has not been a happy one.

As an example, having to import steel plates, their product prices are at the mercy of some of their competitors with their integrated steel industries.

Domestic manufacturers argue that after navigating through the quagmire of import duties applied to their raw material and exemption for buyers, tariffs, VAT on pricing, domestic preferences etc, they actually end up at a disadvantage.

Their greatest challenge would be, besides improving their technical and operational efficiency, is to search and exhaust ways and means and apply the remaining instruments available and within the rules of current international trade to put themselves on a more level playing field.

An ASEAN integrated pipeline network ideally would call on an equally integrated approach from all concerned working towards an equitable distribution of participation and benefit to the governments, producers, users, and members of the pipeline industry community.

If there are encouraging signs in that general direction, then it would be the time to remove the Britney Spears as well as 007 blockbuster movie posters on the wall to once again reveal that infamous poster of the Indonesian Integrated Gas Grid, and savor the renewed anticipation.

The writer is also President of PT Citra Panji Manunggal, a pipeline construction company.